The Weekend That Changed Wall Street

fact that Bear’s rescue would be achieved with the backing of taxpayer money, and he was loath to abuse the privilege. Throughout the weekend the discussions about the bid seemed to range from $8 to $12 a share. But as time began to run out, the number started to shrink precipitously.
I was working at home when I got the call that Bear Stearns was being sold to JPMorgan for $2 a share. I couldn’t believe it. Perhaps my source had dropped a zero?
It’s hard to fully describe the consequences of such a low share price. To put it in context, a year earlier Bear was trading at around $170 a share. To no one’s surprise, shareholder rage in the wake of the announcement was intense. Amid charges of highway robbery, Dimon was forced to go back to the table and push the share price to $10. However, Dimon would later defend the rock-bottom original price to Congress with the explanation, “Buying a house is not the same as buying a house on fire.”
Ace Greenberg would later describe to me how heartsick he felt on that day. “My regret was that we had fourteen thousand marvelous people working for us that were so loyal, and many had been there so long. We had people who were challenged as runners and so forth, and they wouldn’t miss a day of work. Snow, subway strike, these people, believe me, were there every day. It was just marvelous. And I felt very bad. I was afraid they weren’t going to get jobs.”
Still, the sale was widely believed to be a success. A Treasury Department insider who was involved with the deal told me, “The reason Bear Stearns is important is because we could never have pulled off something so major in a weekend without everyone—the Fed, the Treasury, the banks—understanding how disastrous failure would be. Everyone knew the situation was dire—that we had to come up with a deal.”
With the sale in place, Paulson breathed a sigh of relief. They’d dodged a major bullet. One of his advisers said, “Well, you’ve had your big moment, Mr. Secretary. Bear Stearns will be what you’re remembered for.”
If only that were true.

THREE
Zombies at Lehman
“The investment banking model is a confidence game; it’s about funding. There’s no one in the world who could have raised money for Goldman, Morgan Stanley, Lehman, Merrill. Forget it. Everyone was like, ‘I’m staying out of this thing.’”
—A FORMER LEHMAN BROTHERS EXECUTIVE
SEPTEMBER 12, 2008
At the Federal Reserve, the CEO working groups labored on, late into the evening, trying to get a handle on the true condition of Lehman Brothers. The mood was tense and at times sorrowful. Later, I received a call from one of the men that was quite telling. “Paulson made it very clear that there would be no Fed bailout,” he said. “It’s up to us.” He sounded drained as he described sitting at a table at the New York Fed along with Geithner, Paulson, and the Lehman people. He said, “Across the table the Lehman guys truly looked like zombies. And it was at that moment that we all realized, ‘Oh my God, these guys could go bankrupt. They could actually file, and if they do, it’s going to impact all of us.’”
Meanwhile, Fuld and his team were closeted in Lehman’s midtown offices. As rain pelted the thirty-first-floor windows, they worked furiously to find a way to structure a deal that would be acceptable to a potential buyer. That meant packaging and unloading the toxic assets.
Paulson called Fuld Friday evening. “I told the group that they should think about a consortium to buy Lehman Brothers, and they turned it down,” he told him.
Fuld was disappointed but he kept pushing. “We need another idea,” he told his team, and one of the men in the room said, “Okay, I have a different idea. Why don’t you just get them to guarantee the debt on the commercial real estate. That’s the thing people are pointing the finger at. That’s why they’re asking, ‘Is there a hole in the balance sheet?’ We put in $10 billion of equity, and the debt’s guaranteed by the consortium—say another $30 billion. Checkmate. Done.”
Fuld called Paulson back and floated the idea.
“Great. I’ll bring it into the room,” Paulson said.
He called back within a half hour. “No, they don’t want to do that.”
“It was frustrating,” Scott Friedheim, the chief administrative officer and one of Fuld’s closest allies and advisers, recalled later. “We’d come up with idea after idea, and every single one of them got shot down.” He felt exhausted and demoralized.
Scott Friedheim was a young man, only forty-two, but his body was screaming at him, “Slow down, slow down.” That was the one thing he could not do. In the months leading up to September 12, he had been putting in seven-day weeks, and very long days. Later he would tell me with a wry laugh, “When I heard people saying they didn’t sleep for a week during the peak of the crisis, I thought, ‘Oh my God, for us it’s been since March.’ We were in full-battle mode all quarter long. We were in there every frickin’ weekend.”
In early August, on a rare Sunday afternoon away from the office, Friedheim was visiting a colleague at home. “He had a small basketball hoop for his kids, and I went to dunk it in the short basket,” he recalled. “I didn’t even get off the ground. I just planted my leg and a tendon popped out of my hip, broke the hip and tore the labrum, and I went down. I had to be in the office the next day, and I was there, popping Tylenol and in tremendous pain. My doctor said, ‘Stay in bed, rest, keep off the hip for three months.’ Yeah, right.”
To further complicate matters, he was getting married in the South of France over Labor Day weekend. He almost didn’t